Why Europe’s car industry is at the centre of a new US trade war 

Last week, US President Donald Trump announced to hike tariffs on cars and trucks manufactured in the European Union from 15 percent to 25 percent after accusing the bloc of taking too long to comply with the terms of the trade deal agreed last July.

Trump’s latest trade barb comes as the transatlantic ties have been strained, with the latest friction point emanating from the EU’s refusal to join Washington’s current war on Iran.

“I am pleased to announce that, based on the fact the European Union is not complying with our full agreed to Trade Deal, next week I will be increasing Tariffs charged to the European Union for Cars and Trucks coming into the United States,” Trump wrote, without providing any evidence for his claim.

The US president, however, said that vehicles made in the US by EU companies would be exempted from the levy.

So far, no additional tariffs have come into effect, but the move has surprised Brussels, with the European Commission rejecting Trump’s claim that the EU was not complying with last year’s trade deal.

So, how significant is Trump’s threat, and how will the EU respond?

Here’s what we know:

What is the current trade deal between the EU and US?

In July 2025, the US and the EU reached a wide-ranging trade agreement, capping US tariffs on most EU goods, including cars, at 15 percent after months of standoff. The EU also agreed to spend hundreds of billions of dollars on US weaponry and energy products, on top of existing expenditures.

Speaking to reporters at his Turnberry golf resort in Scotland after signing the deal, Trump had hailed the agreement as the “biggest deal ever made”.

Trump said that the EU would be “opening up their countries at zero tariff” for US exports, but added that US levies on steel and aluminium, which he had set at 50 percent on many countries, would not be cut for EU products. Aerospace tariffs would remain at zero for now, he said.

The US president said that the EU would spend an extra $750bn on US energy products, invest $600bn in the US and buy military equipment worth “hundreds of billions of dollars”.

European Commission President Ursula von der Leyen had said the agreement would “bring stability” and “bring predictability that’s very important for our businesses on both sides of the Atlantic”. Von der Leyen had also defended the deal, saying the aim was to rebalance a trade surplus with the US. Trump has made no secret of using tariffs to try to trim US trade deficits.

In 2024, the US ran a $236bn goods deficit with the EU. Last year, despite tariffs being announced, the goods trade surplus continued.

According to Eurostat, the statistics division of the European Commission, “In the third quarter of 2025, the EU registered a 40.8 billion euro ($47.7bn) trade in goods surplus with the United States. This was a 49.7 percent decline compared with the 81.2 billion euros ($95bn) trade surplus in the first quarter of 2025”.

Pharmaceuticals, car parts and industrial chemicals were among Europe’s largest exports to the US, according to EU data.

The July trade deal has yet to be implemented. In January, EU lawmakers initially paused its ratification after Trump threatened to annex Greenland, an autonomous territory of Denmark.

Then, in February, the US Supreme Court declared Trump’s sweeping global tariffs unlawful, putting the future of Washington’s trade deals with every country in limbo.

Trump, however, immediately signed an executive order under Section 122 of the US Trade Act of 1974 to impose a blanket 10 percent tariff on all countries the US trades with, starting on February 24. Later, he raised the tariff to 15 percent, the highest rate allowed under this trade law.

The EU is now facing a 25 percent tariff on cars and trucks in addition to the overall 15 percent tariffs.

The European Parliament has given conditional approval to the trade deal. EU lawmakers have also strengthened the deal’s safeguards by including a provision to suspend the agreement if the US imposes additional tariffs above 15 percent or introduces new tax levies. EU member states are yet to agree on the parliament’s proposals.

On Wednesday, representatives of the European Parliament and the European Council, the body representing EU governments, will resume negotiations on the matter. EU member nations have to agree on the European Parliament’s recommended safeguards before the deal is implemented.

EU members largely want a quick agreement between Parliament and Council on implementing the bloc’s side of the deal, diplomats told the Reuters news agency.

German Chancellor Friedrich Merz, whose country is likely to be hit hardest by a car tariff increase, told broadcaster ARD: “The Americans have it finalised, and ‌the ⁠Europeans haven’t – and that’s why I hope we can reach an agreement as quickly as possible.”

Shantanu Singh and Vikram Naik, two India-based international trade lawyers, noted that prior to the EU-US trade deal, cars and car parts faced US import tariffs of up to 27.5 percent. The deal struck in July established a tariff ceiling, reducing them to 15 percent, making the car sector one of its biggest beneficiaries.

“So, the threat of reversing those tariffs to 25 percent become quite significant commercially. At the same time, the threat is politically significant to US trade partners with deals. They can now see that there is no room for legal arguments or dispute settlement, and these deals can be rendered meaningless due to perceived non-compliance,” they told Al Jazeera in a joint response.

Peter Chase, senior fellow focusing on the transatlantic economy at the German Marshall Fund of the United States’s Brussels office, said Trump’s announcement reportedly stems from his impatience with the EU’s lengthy procedures to implement  the US-EU trade “deal” agreed last year, the so-called “Turnberry Accord.”

“We will not be able to gauge the significance of the president’s threat, made on social media, until it is finalised in an Executive Order issued by the White House,” Chase told Al Jazeera.

“But in general, although the EU sells nearly $40bn in finished cars and trucks to the United States each year, new tariffs as such might not have much effect on trade flows – that depends on whether American consumers want to continue buying the cars, regardless of the additional tax the president is imposing on them,” he said.

Chase noted that Trump has also imposed tariffs on cars imported from other countries, as well as on imported car parts and components, which in turn affects the huge manufacturing operations European – as well as US and other – companies have in the United States.

“All this complicates the competitive landscape in the US auto market … so that American consumers will probably not pay too much attention to this newest move,” he added.

While the legality of these additional tariffs in the US remains unclear, Camille Reverdy, an affiliate fellow at Brussels-based think tank Bruegel, said that the US can justify such tariffs under Section 232 of the Trade Expansion Act, since the US Department of Commerce reported that imports of other cars and car parts posed a threat to US national security.

“However, recent US Supreme Court rulings weakened the legal robustness of this justification. From an international law perspective, the EU argues that the threat violates existing trade agreements and may challenge the measure through the WTO [World Trade Organisation],” she added.

What is EU’s car trade with the US like?

According to a January report by Car Sales Statistics, the largest light vehicle manufacturing groups in the US in 2025 were GM, Toyota, Ford, Honda, and the FCA (Stellantis) groups. The best-selling car brands were Toyota, Ford, Chevrolet, and Honda.

The report also noted that, among these car brands in 2025, US light-vehicle sales totalled 16.3 million, with German brands like Volkswagen, BMW, Mercedes-Benz, Audi, and Porsche accounting for roughly 1.2 million – about 7.5 percent market share.

German Member of the European Parliament Bernd Lange told Euronews on Monday that Trump’s new tariff threat appears to mainly target Germany.

“There are no legal or no economic reasons for those tariffs. This is really politically against Germany,” Lange said. “He is targeting specifically German car manufacturers.”

The European lawmaker’s remarks came just days after German Chancellor Friedrich Merz criticised the US war in Iran, following which Trump announced the withdrawal of 5,000 US troops from the country.

President Trump has also often complained about an imbalance in the car trade, saying the EU does not import enough US-made cars.

According to The European Automobile Manufacturers Association (ACEA), the main lobbying and standards group of the car industry in the EU, the US remains the second largest market for new EU vehicle exports after the UK. “In terms of value, the US accounted for 18.4 percent of the EU export market in 2025, down from 21.9 percent in 2024, a May 4 report from the lobby said.
Reverdy from the Brussels-based think tank said that Germany is dependent on exports and is likely to be the most impacted EU country, given its strong dependence on exports.

“Other major European producers, such as France and Italy, will also likely be impacted but to a lesser extent as their automotive sectors are less reliant on the US market,” she added.

“Beyond the direct impact on final vehicle exports, the threat would also impact European countries in earlier production stages. For instance, Slovakia, Czech Republic, and Hungary are highly export-oriented and deeply embedded in European/German car supply chains, making them vulnerable to a contraction in external demand,” she said.

How will the EU respond?

On Monday, European Commission spokesperson Thomas Regnier told reporters that it is not the first time the EU has experienced such threats. “We remain very calm, focused on enforcing the joint statement in the interests of our companies, of our citizens,” he said.

While European Commissioner for Trade Maros Sefcovic is scheduled to meet his US counterpart Jamieson Greer on Tuesday before a G7 trade ministers’ meeting in Paris to discuss the tariffs, the EU’s automobile industry lobby ACEA has also urged the European Parliament and the Council to find common ground and end the trade negotiations in a swift and successful manner.

“Trump has some grounds for being annoyed at the EU’s lack of implementing the trade agreement, but that said, EU politicians argue that they entered into the deal under duress and they rightly question whether the US intends to stick to its own commitment … since this whole dispute began when the US unilaterally raised tariffs on EU products in the first place,” Chase said.

“The EU will continue to talk to the United States, but it should be cautious about entering into new commitments,” he added.

Reverdy said the EU also has credible retaliation tools, including the imposition of retaliatory tariffs on US goods, the use of trade defence instruments and safeguards measures.

“The EU could also pursue dispute settlement at the WTO,” she said.

“Beyond trade policy responses, the EU is also likely to rely on industrial policies measures to support its automotive industry, and to promote market diversification outside of the US.”